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Page 4B— COLORADO REAL ESTATE JOURNAL — March 4-March 17, 2015
I n Colorado and nationally,
freestanding emergency
centers/emergency
departments are increasingly
coming to market as health
care real estate acquisition
opportunities. Environmental
conditions appear favorable –
most especially after an Affordable
Care Act requirement that
insurers cover out-of-network
emergency services. Add in
today’s high facility fees and the
acquisition of a freestanding
emergency department looks like
a winner.
However, as health care real
estate investors have sometimes
learned the hard way, market
conditions can shift rapidly. New
laws and insurer payment policies,
changing health system alliances
and strategies, or even advancing
technology can turn today’s hot
property into tomorrow’s obsolete
write-off.
Before making a long-term
investment, it’s important to better
understand what freestanding
emergency departments are
and the market for them. Due
diligence requires assessing
the long-term need for and
likely profitability of the services
these facilities provide, as well
as knowing the operators, and
understanding how freestanding
emergency departments fit into
the overall business and market
strategies.
Freestanding emergency
department boom. A
freestanding emergency
department provides the same
level of care as a hospital-attached
emergency department, except for
trauma services. Unlike an urgent
care center, a freestanding ER is
required to operate 24/7/365,
have emergency physicians on
site at all times, provide lab and
imaging services, and stock
additional medications.
According to the American
Hospital Association, the number
of freestanding emergency
departments has more than
doubled in four years to over 400
nationally. Just under 20 facilities
currently operate in Colorado.
About half of these are located
in the Front Range and most
are hospital sponsored, though
nonhospital operators run a few.
In late 2013, SCL Health
announced a joint venture with
a for-profit operator to develop
four 10-bed community hospitals.
These facilities are essentially
freestanding ERs with some
beds, which help establish the
operator in new areas. Other
systems within the Front Range
plan similar expansions. This
suggests many systems see strategic
value in freestanding emergency
departments beyond the revenues
they generate directly.
Freestanding emergency
department advantages. A
major factor driving freestanding
emergency department
proliferation is the ACA, which
classifies emergency services as an
essential health benefit. As such,
insurers are required to cover
emergency care at any location,
even out of network, without
preauthorization. So patients may
receive emergency care anywhere
they like or need without penalty
– and they often choose the nicest,
most convenient location available.
Among the benefits freestanding
emergency departments offer
patients is a shorter wait time for
emergent care. As we’ve seen
in the Front Range and other
markets, ER wait times are often
posted on highway billboards and
online – and they can be fairly
long. Freestanding emergency
departments may reduce stress
on hospital-attached units while
providing better access to the high-
quality emergent care patients
need and expect. Having more
convenient locations available may
also help save lives.
Another benefit for hospitals
and health systems is that
freestanding facilities cost less
than hospital-attached units
while providing similar revenue
potential. Most freestanding ERs
charge a facility fee, which is
allowed by many payers to cover
the significant cost of 24/7/365
standby services. And these fees
are substantial.
Assessing the risks. Rapid
expansion of a new service
segment does not guarantee
success. While the service need
and payment fundamentals look
good, there is no proven long-
term business model for operating
freestanding ERs.
Emergency services often are a
loss leader for hospitals and health
systems, and are financially viable
only because they attract new
patients to refer to other services
within the system’s continuum
of care. So it may be difficult
for a freestanding emergency
department to generate profit as a
freestanding business.
Therefore, as an investor it’s
important to know who the tenant
is and how freestanding ERs fit
the overall business and market
strategy. An operator with strong
credit may be needed to ensure
long-term viability.
Also, current favorable payment
conditions aren’t likely to last.
After all the ACA’s purpose was
to reduce costs and increase
accountability. But the high
facility fees most freestanding ERs
charge, and the fact that patients
are insulated from their cost,
run counter to that end – and
legislators know it.
Colorado lawmakers already
have proposed bills that would
prevent freestanding ERs not
operating under a hospital’s
license from charging patients
emergency facility fees. Also, in
2013, Medicare and Medicaid
paid for roughly 35 percent of all
emergency services, according
to the Centers for Medicare &
Medicaid Services. Therefore it’s
likely that the federal government
will change their reimbursement
method, just as private insurers
have already begun to fight facility
fees.
So even though freestanding
emergency departments are
expanding and likely will continue
to do so for the next few years, it
is essential to understand the risks
before jumping in with both feet.
There are plenty of people who
purchased ambulatory surgery
centers thinking they were a
guaranteed long-term real estate
play – only to find themselves
holding functionally obsolete
facilities that were cheaper to
abandon than to renovate at the
end of the first 10-year lease. A
hasty investment in freestanding
emergency departments run by an
unreliable operator could easily
come to a similar end.
Shane Seitz
Investment officer, Ventas Healthcare
Properties Inc., Denver